As someone who has been advising investment clients for over 30 years I’m something of an elder lemon, to coin a phrase. Some people may call me experienced but experience is usually borne out of your own suffering or watching others suffer.
Looking back on the trends of investing over those 30 years, an experience which started when I was a stockbroker brings the phrase to mind of “the more things change, the more they stay the same”. The names of the investments quoted may have been replaced by more, now, familiar names but the focus and the outcomes invariably are the same.
A few of the recurring questions that I am constantly asked are:
- “Should I invest because the stock market is now getting stronger?”
- “Should I invest because the stock markets are at all-time highs?”
- “Should I buy Gold?”
- “Should I get back into property?”
- “Should I buy X or Y shares because it is now lower priced than it was before?”
- “Should I borrow to invest?”
- “My friend has told me that I could make a quick profit by buying and selling – what do you think?”
My stock answer is that there is never a good time to invest or, even, dis-invest because everyone is unique in what is important to them personally and investment is only one part of a person’s financial arrangements. These arrangements hinge on what the money is eventually to be used for. Everyone is different as is every family and every family’s financial needs and timing. Trying to copy your friend’s investment philosophy just because they talk about what they are doing with their money is the last thing you should do. And yet, people can be very lacking in their own self-confidence, hence the range of questions like the ones above.
History has a way of repeating itself, not only with investment markets but also with peoples approach to managing their money. Even when people have made mistakes in the past, sometimes they look to repeat those mistakes again. Such people can’t just help themselves as they seek to try and make up for previous financial losses.
Other people can be too trusting and even when they tell an investment advisor that they don’t want to take risk, sometimes the advisor lets their own behavioural bias overtake their advice to the client. Because of the need to trust by these clients they don’t question deeply enough what is being promoted to them.
And therein lies the rub. Over my long advisory career I continue to be amazed that even my own clients don’t question my own advice thoroughly enough. And yet many of my clients are very successful people who would negotiate down to the last cent in their own businesses and drive hard business deals. But when it comes to their own money all common sense seems to go out the window and be replaced by blind faith in someone else’s judgement, whether it’s an investment advisor or a friend in the pub.
The starting point for any investment is a personal financial plan and not a personal investment! Investments should only be made after deciding on what is appropriate to your need to generate capital growth or income and then only to what is a necessary level. Sometimes the level of investment return required is far lower than that which an investor actually tries to target. In targeting higher returns, more risk is taken on board. Indeed, this is probably the biggest failing of both investment clients and many investment advisors in the Celtic Tiger era. Huge investment risks were taken which were unnecessary and these risks were compounded by borrowings.
So how do you come up with a financial plan that won’t end up jeopardising your financial wellbeing? The first place to start is with an experienced financial planner who will do more than just ask you about assets and liabilities, income and expenditure. These are “Givens” by any advisor who knows how to truly provide quality financial advice. The key is the level of serious discussion that takes place after these facts are acquired with the focus on personal needs now and in the future.
In my case it usually takes three meetings before we start to formulate a financial plan and a further month or two afterwards to start implementing. The reason that I enforce such delay is because my clients’ financial plans are for their lives and that of their family. Taking time to reflect on your future is one thing that most people do not do and yet it is probably one of the most important things that they should do.
So the next time that you hear the latest financial hot tip, stop and think about whether it is worth your while even talking about it. If you have a financial plan in place then such talk should not even register. If it does, then maybe you need a new plan or even a new financial planner.